ISPs ask Congress for a COVID-19 bailout

Representatives for the nation's Internet service providers are now arguing that Congress should cover the cost of customers who cannot pay their broadband bills due to the new coronavirus.

The development stems in part from the FCC's "Keep Americans Connected Pledge." That program, launched in early March at the outset of the pandemic in the US, called on ISPs to refrain from canceling customers' service and to waive any late fees due to COVID-19. More than 700 providers signed on to the pledge, which the FCC recently extended through June.

Importantly, some providers are reporting that hundreds of thousands of Americans have taken advantage of the offering, which is not surprising given that the US unemployment rate spiked to 14.7% in April as the economy lost more than 20 million jobs.

For example, Verizon said it increased its bad debt reserve in the first quarter to $228 million, mainly based on the 800,000 customers – mostly in its mobile business – who said they may not be able to pay their bills due to the pandemic. Verizon said it could increase that bad debt allocation in the second quarter.

Similarly, the NTCA reported that roughly half of its members have reported a 20% rise in unpaid bills. "To put such impacts into perspective, we heard from one rural cooperative who is nearly $60,000 in the red already in keeping voice and broadband service on for customers who have become unable to pay these past several weeks," the association's CEO, Shirley Bloomfield, wrote in testimony to Congress. The NTCA represents smaller US telecom companies. "We are in the process of conducting an updated survey of members now to determine whether and to what degree these figures may have changed, but I have no reason to believe that the situation will have improved given the steady and unfortunate increase in unemployment claims nationwide."

Other telecom trade groups are reporting similar issues. "As the first billing cycle since the outbreak of COVID-19 comes to an end, many are starting to see that doing the right thing (maintaining service, in some cases without payment) is coming at a substantial cost," wrote Jonathan Spalter of USTelecom, which represents the broader US telecom industry, in his testimony to Congress. "Programs like the Paycheck Protection Program have been helpful, but I encourage Congress to continue to look for ways to both ensure customers can afford the broadband they need and keep providers on sound financial footing as they continue to do everything possible to keep our nation connected."

Spalter cheered new legislation that would allocate $2 billion for small broadband providers with fewer than 250,000 customers that are providing free or discounted broadband services during the pandemic to low-income families.

Others, however, have proposed wider programs.

"CCA supports the Stay Connected Voucher proposal," wrote Steven Berry of the Competitive Carriers Association (CCA), which represents some of the nation's smaller wireless network operators, in Congressional testimony. "Briefly, here's how it would work: Qualified households would receive two $50 vouchers during each month of the declared COVID-19 crisis to apply to communications services bills or at the point of sale. Vouchers would expire six months after the end of the emergency period. Eligible consumers could choose to apply their vouchers to one or more communications providers, according to their household's unique communications needs – broadband, mobile, video or voice."

The analysts at Wall Street firm New Street Research argued that the FCC's extension – from 60 to 120 days – to its Keep Americans Connected Pledge has a "fatal flaw" because operators will now need to deal with both delayed revenue and bad debt that is at least double what they originally signed up for. Indeed, according to some reports, certain operators are moving ahead with some service cancellations anyway.

"The companies are all looking at implementing plans to structure payments to optimize for returns while also containing churn over a period in which millions of their customers will be financially strapped," the New Street analysts wrote in a note to investors Sunday.

The analysts said they expect telecom providers to seek financial support from Congress in its next round of stimulus spending.

"We have not yet seen evidence that the effort is gaining support in Congress or with the administration, but while things will move (or die) quickly in the next few weeks, it is still, in our view, early in the process," the analysts concluded.